Post detection audit and assessment: rebated oil used as road fuel: which assessment power should be used?

Our approach in the Corneill case was vindicated by the judgement on the case given by Justice Mann. This stated at paragraph 30 that:

‘It does not seem to me that the terminology of Section 12(2)(a) requires that one has to catch a particular vehicle with red diesel in its tank or anything like that. An assessment can be made where it can be demonstrated that oil has been “used or taken into a road vehicle in contravention of Section 12(2)”. It is not possible to read into that part of the section any particular evidential requirement as to how closely one has to tie any particular fuel to any particular vehicle.’

He went on to say at paragraph 31:

‘Nor can any degree of particularity be read into the provisions of paragraph (a) of that section. The “oil” in question is the oil which is the subject of the consideration. Similarly “the road vehicle” is the road vehicle in question. There has to be sufficient evidential linkage between rebated oil and use in a vehicle to give rise to an inference that oil in a provable quantity has been placed into a vehicle. Sometimes a great degree of particularity will be available, sometimes it will not. I can see no legislative purpose in defining some sharp cut-off line in a degree of particularity which is required. What is required is appropriate proof and evidence of facts’.

Based on this judgement it is clear that not only is it un-necessary to have direct evidence in order to make and notify an assessment under Section 13 (1A) HODA, but also that there is no requirement for the evidence that we do have, to be in respect of a particular vehicle or vehicles. What is important is that there is sufficient evidence to discharge our burden of proof on the balance of probability that there has been a contravention of sub-section 12(2) HODA and that there is a liability to the quantum assessed for, ie a provable quantity of oil. The level and type of evidence will of course be determined by the particular facts on a case by case basis.

Use of ‘Best Judgement’

While the law does not specifically provide for the use of ‘Best Judgement’ when assessing under the provision of HODA Section 13 (1A), it is inevitable due to the nature of cases where rebated heavy oil has been taken into a road vehicle and/or used as fuel by a road vehicle, as there are unlikely to be discrete records and audit trails, that the assessing officer will have to exercise some form of judgement when making their assessment.

Justice Mann stated at paragraph 32 of his judgement that:

‘Nothing can be read into the absence of a reference to “best judgement” in Section 13. … its absence from Section 13 of HODA is, in my view, not a bar to the exercise of some judgement in the assessment which HMRC is entitled to make under 13’.

He goes on to say at paragraph 33:

‘I therefore consider that Mr Barlow [Corneill’s Counsell] is wrong in his submission that no element of estimation, or no significant element of estimation, is permitted under Section 13. What is required under Section 13 is appropriate evidence’.

From the above it is clear that HMRC may exercise judgement and draw inferences from the available evidence when making and notifying an assessment under sub-section 13 (1A) HODA.

Another problem with assessments made under the sub-section 13 (1A) HODA provision is that due to the nature of the contravention giving rise to a liability, there is not a fixed duty point, but rather an ongoing one, so long as the rebated heavy oil is being used as road fuel. Additionally, unlike in VAT, there isn’t any prescribed accounting period against which an assessed amount can be posted. As a consequence any assessment made and notified is likely to be ‘Bulk’ or ‘Global’ in nature.

(For further information on the issue of ‘Bulk’ or ‘Global’ assessments, their format and presentation, please see HCOS5150).

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Finance Act 1994 Section 12

The Finance Act 1994 Section 12 contains two powers to assess excise duty but cannot be used to assess for amounts equal to the rebate.

The first of those powers, Section 12 (1) is the only provision that allows an excise assessment to be made to best judgement and only in circumstances where there has been a default as described in Section 12(2) and is sometimes known as the ‘default’ power.

In the circumstances where rebated heavy oil has been taken into a road vehicle as fuel or used as fuel by a road vehicle, there is no default as defined in Section 12(2), and this assessment power cannot be used.

The second power, Section 12 (1A) is the alternative power to assess in Section 12 of the Finance Act 1994 and is known as the ‘ascertained’ power.

(1A) Subject to subsection (4) below, where it appears to the Commissioners-

that any person is a person from whom any amount has become due in respect of any duty of excise; and

that the amount due can be ascertained by the Commissioners

the Commissioners may assess the amount of duty due from that person and notify that amount to that person or his representative.

(These assessment powers are described in more detail in the guidance given in EAIG Excise Assessments.

Finance Act 1994 Section 12A

The provisions in Section 12A FA 94 refer to situations where excise duty relief has been given but ought not to have been given, or would not have been given had the facts been known or been as they later turn out to be.

The person liable under this provision is the person given the relief, or in this case, a rebate. The person granted the rebate is the refinery at the duty point and not the end-users. Consequently, such a person does not fall within the precise wording of Section 12A FA 94 and so is not liable to be assessed under that provision.